Another sort of US invasion is hitting European shores, with major players Apple, Napster and Sony Connect ushering in a new era in digital music offerings. That adds to existing stores from OD2, which currently powers download and subscription sites for MSN, Virgin, Coca-Cola, and HMV. Fans now have a lot more ways to download music without feeling guilty about it.

Already, the European market is starting to resemble the US, with iTunes taking a quick lead. The store, which launched mid-June in the UK, France, and Germany, has already sold 800,000 tracks in its first week. 450,000 of those downloads came from the UK. Currently, Apple holds a commanding lead in the States as well, with close to 100 million downloads. In comparison, Napster has sold just 10 million in the US, and has not released figures for Europe. iPods, the portable players that fit hand-in-glove with the iTunes Music Store, now command close to 75 per cent of the market. It’s the dynamic duo that is currently leading the music industry’s digital transition.

So, will iTunes continue to dominate in Europe? Apple seems to be running with a winning formula developed in the US, focusing on ease-of-use and uniform pricing. Steve Jobs emphasized a simple formula to win over European users, including low 79p price-points and ultra-easy synchronization with the mega-popular iPod.

But not everyone is as thrilled with the iTunes story. Although iTunes Europe offers over 700,000 tracks, many independent record labels have been left out in the cold, at least for now. Label consortiums such as AIM (the Association of Independent Music) complained that negotiations with Apple were tilted against them, with one indie negotiator damning the contracts as “suicide”. Those allegations could work against Apple’s indie-friendly image, a key marketing aspect that has been played up since the PC space became dominated by Microsoft. Beyond that, consumers will feel certain gaps in content, with tracks by groups like the White Stripes, Basement Jaxx and Jakatta absent. Jobs has indicated that indie negotiations are in progress. Whether or not these artists jump on board will be determined in the coming weeks and months and could have major implications for the service in the future.

Make up your mind

The indie issue may be overblown in the press, but on a consumer level it highlights issues with content gaps faced by paid download sites. Although 700,000 tracks is a decent amount, it compares unfavorably to the millions upon millions of tracks that can be found on any P2P network. Customers, especially music fans, are fickle. If a certain type of toothpaste is missing from a local supermarket, customers are likely to find a substitute brand. If a certain artist is missing on a digital music store, consumers may be inclined to find a new place to get music.

That all plays very well for iTunes competitor Napster. The store has received better reviews than iTunes from consumers when it comes to its indie selection. The service has better local content in the UK – potentially a draw for early adopters. But for Mac users, the point is moot, as the store is available only to PC users.

Does Napster have a chance to compete with iTunes, at least in the PC space? Napster did beat iTunes to the punch in the UK, striking out with an impressively early May 20 release date. But most industry insiders believe that Napster’s precocious delivery came with some compromises resulting from rushed rights negotiations. For starters, the 99p price point is much higher than iTunes, a major disparity that has tilted acceptance away from Napster.

There are also strategy differences between Napster and iTunes that mirror the US market. Napster has a subscription and download offering, and ultimately believes that the future of digital music lies in monthly subscriptions, not à la carte downloads. Apple has a completely different outlook, firmly placing its strategic compass towards digital ownership and collections based on individual downloads. Right now, consumers like the ownership associated with downloads, but that could change as users migrate towards portable subscriptions and always-on, digitally connected homes. (In fact, some reports have bubbled up from inside Apple that top-level execs are pressuring Jobs to migrate towards a subscription offering…)

‘Game over’

So what about OD2? A lot has happened for the Peter Gabriel and Charles Grimsdale-led operation in the last week, including a purchase by Seattle-based Loudeye. The European music store back-end provider was one of the first to offer legitimate downloads, and supplies back-end store services to a bevy of ISPs and consumer brands. Though rooted largely in subscription-based models, the team moved solidly into the à la carte space as a pre-iTunes strike last week. Its SonicSelector digital jukebox allows consumers to mix streams and downloads in a pay-as-you-go structure.

Jobs was decidedly critical of the OD2 offering, noting that most tracks are actually offered for much more than 79p, with complicated rights usage rules layered in. That, coupled with its emphasis on subscription models, could make it an also ran in Jobs’ eyes. After releasing first week European sales, Jobs noted: “In the UK alone, iTunes sold more than 450,000 songs in the last week – 16 times as many as OD2, its closest competitor."

One insider was even more blunt: "game over, forget OD2.”

For US-based Loudeye, purchasing OD2 provides a great way to gain a global music store footprint. The $38.6 million dollar acquisition was based on Loudeye client requests for a multi-national presence. After all, most major brands sell across the globe, and require a digital music store that compliments that strategy. The Internet at its essence is also global, knowing no country borders.

Coca-Cola is the perfect example of a brand that enjoys a global presence and could benefit from a global digital music offering. The soft drink giant developed its music store offering in the UK with OD2, but could potentially expand that within the new Loudeye/OD2 structure. More and more consumer brands and services may jump on board, a market that iTunes is not capturing.

Perhaps nothing is complete without something from major label and consumer electronics giant Sony. Connect, an ill-fated and cumbersome application recently launched in the US, is coming to European shores next. The UK, France, and Germany will receive the initial application release. By some accounts, Connect may be “dead on arrival” based on its complicated user interface and usage restrictions – weaknesses that play squarely into iTunes strengths. Moreover, Sony currently lacks a home run portable music player, though an “iPod Killer” is in the works.

Apple has clearly distinguished itself as a frontrunner after one week on the scene. But as many industry pundits like to say, “it’s still the first inning”. And so far, very few music fans have actually dipped their toes into the paid download and subscription space. Offerings like iTunes and Napster still only command very small fractions of total music sales. Will music fans come around digitally? Apple, Napster, Sony and OD2 are placing a big bet that they will – and eventually pay for it.